EU finance advisors back ‘less risky’ energy efficiency loans

Nearly three-quarters of the EU’s 2030 clean energy investment gap – estimated at around €130 billion per year – is accounted for by energy efficiency in buildings, most of which is concentrated in central and east European countries. [woodleywonderworks / Flickr]

A high-level group of financial experts has advised European regulators to encourage a more favourable treatment for energy saving loans and mortgages, in a move that could unlock billions in lending for green building renovation programmes across Europe.

The EU’s high-level group on sustainable finance issued its final report to the European Commission on Wednesday (31 January), making recommendations to unlock private investments in renewables and energy savings.

Nearly three-quarters of the EU’s 2030 clean energy investment gap – estimated at around €130 billion per year – is accounted for by energy efficiency in buildings, most of which is concentrated in central and east European countries, the report says.

“Energy efficient lending is less risky,” a European Commission official told EURACTIV, saying banks are already looking at ways of providing “more favourable prudential treatment” to energy saving programmes, such as building renovation loans to homeowners.

For instance, the European Mortgage Federation is developing a standardised “energy efficient mortgage”, which links efficiency improvements with a lower probability of default of borrowers.

EXCLUSIVE / Homeowners will qualify for reduced repayment rates on their mortgages if they undertake energy efficiency renovations, and lower interest rates on loans to pay for them, under “pioneering” plans being drawn up by lenders for consideration by EU and global regulators.

Commission “action plan” in March

The EU executive will follow up on the report’s recommendations during the first half of March with a comprehensive Action Plan on green finance that will include further steps to encourage investments in energy efficiency.

“We are positively looking into it,” a Commission official told EURACTIV, saying this was something that the European Parliament had been calling for as well.

The recommendations are part of a wider report on green finance, which calls on the 28-country bloc to hardwire sustainability goals into the financial system. An interim version of the report, published in July last year, called on Europe to stop pouring public money into polluting fossil fuels and focus public spending on clean energies instead.

A group of financial experts has set out their vision for hardwiring sustainability goals into the European Union’s financial system, calling on 28-country bloc to stop pouring public money into polluting fossil fuels and focus spending on clean energies instead.

Christian Thimann, the head of sustainability at French insurer AXA, who chaired the high-level group, said: “There is no claim that everything green is necessarily less risky. But the group does make the claim that taking account of environmental and climate risk and long-term sustainability may have – and in some cases must have – a positive impact on your risk analysis”.

On energy efficiency, the report calls on policymakers to support efforts to “exploit potential links between energy efficiency savings and mortgage loan performance”.

Energy efficiency investments affect the value of a building or industrial facility “by more than just the present value of the expected energy savings”, the authors note, saying banks should be able to better identify these multiple benefits. Measuring those “would help de-risk energy efficiency investments,” the group says in its recommendations to the European Commission.

The European Commission’s High-Level Group on sustainable finance is currently looking at the pros and cons of slapping “penalties” on fossil fuel assets that may end up being stranded as investors shift to low-carbon portfolios, Christian Thimann told EURACTIV in an exclusive interview.

Lower capital requirements

Valdis Dombrovskis, the EU Commission vice-president in charge of the euro and financial services, said the EU executive was “looking positively at the European Parliament’s proposal to amend capital charges for banks to boost green investments and loans by introducing a so-called green supporting factor.”

Speaking at the One Planet summit in Paris last year, Dombrovskis said: “This could be done at first stage by lowering capital requirements for certain climate-friendly investments, such as energy-efficient mortgages or electric cars.”

The Commission’s Action Plan will include a “harmonised taxonomy” for banks to classify different types of financial products according to their environmental performance and prevent “greenwashing”.

Some of the recommendations included in the high-level group’s interim report, published in July last year, have already been followed up. In September, the EU statistical office revised its accounting rules, allowing local authorities to stop counting as public debt the building refurbishment work they undertake as part of energy performance contracts.

Eurostat last week revised its accounting rules, allowing local authorities to stop counting as public debt the building refurbishment work they undertake as part of energy performance contracts, writes Quentin Genard.